Does one size fit all? The influence of logistics in e-retailing.

There is no doubt that the Internet is very important to corporations and to consumers alike. It offers us convenience and a lifestyle that we can all appreciate very much. I venture to say that our generation, and certainly our children, are so addicted that we can't live without this technology. Imagine when we want information about a company or a product which we intend to buy; we just surf to the most popular search engines like "Google" and within seconds we receive a plethora of links. Two decades ago we would have wasted a half day for the same search. The Internet makes our life easier and more effective.

Internet access for the households in the EU27 is well represented for only a small number of countries. However, there is still huge potential of new e-customers in Europe. We expect that the e-shopping culture, given the digital century that we live in, will grow enormously in the coming years. More and more European companies are aware of the Internet's role as an additional sales channel but aren't quite sure how to organize the logistics back-office.

Before you start to explore all kinds of sales activities via the Internet, you need to be aware that logistics (your back-office) is critical to your success. A good looking website is absolutely not enough! The road to e-tailing is crowded with the corpses of enterprises that failed because they lacked the "back-office" support, i.e the original eToys.com is in itself a case study of how not to do it. A good website must be supported with an efficient logistics infrastructure. That's the basics! It's not as easy as it might appear at first glance; certainly not for those Click retailers which don't own assets (no warehouses and no inventories) and/or have limited visibility into their supplier's inventory levels. These e-tailers mostly use the so called "drop-shipping" concept. Under this business model, supply chain connectivity between the different IT-systems is business rule number one.

The other category of companies, namely the Clicks and Bricks retailers (Tesco.com, Staples.nl, etc.) which also aim to operate along the Internet, have the advantage of having their own assets (warehouses and inventories). From an in-house e-fulfillment point of view, the Bricks retailers have a relatively easier job to launch an e-tailing business because they already possess an existing distribution infrastructure and available products on stock to deliver.

From an outsourcing perspective, warehousing and/or distribution activities could be operated by a logistics service provider. The question is whether or not outsourcing is part of the overall company strategy? Outsourcing can at least minimize capital entry hurdles like buildings and equipment requirements. In this case, all categories of companies have more or less the same level of difficulties to operate an e-commerce business.  

Room service or not?

It depends on the customer's choice. If for instance, a guest of a hotel chooses for room service, he or she normally gets the service that they asked for delivered quickly but pays a premium for the service. If we expect the same treatment on a logistics level, it is only normal that additional services, like home delivery, must carry a premium. In doing so, the promised services (the right products along with the agreed upon conditions and price) must be respected by the seller. Unfortunately, this is not always the case. The customer pays for room service, but sometimes receives a lower service level than the standard service levels.

The e-customers will almost always go for the best quality as compared to the lowest price and best service. If you don't meet the customer's expectations, he or she will go somewhere else. Moreover, the customer is better informed about your competitors than you might think. If we assume that the quality level and price of your products are very competitive and that the e-customers know it, he or she will go for the best service. But what is service for him or her? Service is delivering the right product and the right amount in the right packaging mode within the right time-frame, preferably as soon as possible. Now we enter the realm where you can make the difference and that's with logistics. You can only deliver your e-customers the expected service levels if you succeed in developing the best and most cost-effective logistics network. Therefore "One size fits all" is not the solution!

I would be delighted to receive personal accounts of logistics obstacles and challenges that the readers of this blog have encountered. Please email me at mail@groenewout.com  My colleague, Mo Lasgaa, co-wrote this blog.